Agenda item

Please outline your role and its responsibilities

(1)          I have recently gained a new part to my role, and am now the Energy and Sustainability Manager at Southend-on-Sea Borough Council.  The Sustainability part was added in mid-November.

How difficult was it to set up what you have at Southend?

(2)          It was not too difficult, having taken only 8 months from the research stage to going live, but it took a lot of effort. We looked at the options for addressing energy bills for residents and looked at what other local authorities – for instance, in London, Nottingham and Bristol – were doing to address the same issue.

(3)          With OVO, we saw an opportunity to set up a community energy scheme, and a chance to partner with them without limiting our future options. Partnering with them also offered the opportunity to start work quickly and for no financial outlay – always a good thing!  We needed to understand the issues involved in partnering, and design our marketing.  There were costs - but no benefits - in making the new partnership a separate company, so we didn’t do that. Part of our procurement process was to research if any other local authorities were offering something similar.

(4)          Southend-on-Sea Borough Council has no purchase financial transaction with OVO; we never purchase anything from them, so the arrangement has no procurement risk to us, yet gives us an opportunity to earn money.  OVO sells energy direct to residents under the banner of Southend Energy.

(5)          It was difficult to take a proposal like this to Council just before election time in May, but it went through unchallenged, having previously been considered by the Cabinet and the Place Scrutiny Committee.  There was discussion of issues such as the fact that energy prices were falling at the time, the suitability of OVO as a partner and whether or not Southend Energy would prove to be the cheapest energy supplier for local people. Final approval was given by the Council in March but we could not go live until after the elections, so we had just two weeks to organise the launch before going live on 28 May.

(6)          It is important to understand how the energy market works for consumers. There are 6 - 8 energy companies selling energy below cost price at any one time, with which Southend Energy has to compete. The Competition and Markets Authority Report from summer 2015 (David Price has a copy) points out that only 1 in 10 domestic customers shops around for the best energy price and that 9 in10 people are being overcharged, at a national cost of £1billion per annum.  The efforts of regulator Ofgem have not been successful in addressing this, and the situation has not changed in the last 3 - 4 years. This just relates to the domestic energy market; the situation for small business users is worse. Generally, people can only benefit from shopping around if they do it every year.  Ofgem requires that, at the end of a fixed-term contract, for example a 12-month contract, customers may renew with the same supplier (who should give them written notice that they may do so) or switch to a new supplier; however, if they do not, they must be placed on  a standard variable rate, which is usually very expensive, but from which there is a 28-day escape clause.  90% of customers are on the expensive standard rate and are hence paying more that they should be.

(7)          I cannot comment on people’s individual contract arrangements, but it is wise to be aware of who is the energy supplier behind popular packages which are promoted to the public – e.g. customers buying energy from Sainsbury’s  will actual have it supplied by British Gas. Ofgem requires all suppliers to tell customers if there is a cheaper tariff they could be using, depending on their usage. However, there is no such obligation upon a supplier to tell their customers that they can switch to another supplier. When deciding whether or not to change suppliers, customers should look at the service they have received, e.g. how the supplier dealt with any problems.  Achieving a good national ‘switching habit’ also depends on customers having the discipline to review their arrangements on a regular basis. OVO writes to customers several times at the end of their 12-month contract to ensure that those who want to switch have notice to do so and are able to make arrangements.

It seems that younger householders are keener to move around and get a good deal, but as people get older, shopping around to get the best deal becomes a chore.

Younger people are perhaps less nervous of switching, particularly online.  Perhaps there is an educational issue around raising awareness and building confidence.

(8)          Yes, we found an educational issue when we undertook our public consultation. The people who attended the focus groups that we used were all aware that they could save by switching. However, many said they were also frightened of things going wrong if they switched, and worried what might happen as a result, so they had taken no action.  Many people expected us to offer them a contract with Southend Energy on the spot, at the focus group meeting, and of course we couldn’t do that. There was much trust in the Council to research the issue properly and do what was right for local residents. We have found that the vast majority of our customers are over 60, which seems to bear out the point made previously about older people being less keen to make changes.

Your Environmental Strategy document is very comprehensive, covering low energy, low carbon and high sustainability, and you say that you have good Council engagement in it. In Kent we find it hard to engage people in this sort of issue; it is difficult to change people’s behaviour.

(9)          Thank you for your compliments on the Strategy.  We have much ambition to move forward. 

How did you address investments in the capital programme, eg in solar energy? 

(10)       Our aim is to achieve savings via our Environmental Strategy, even if such savings take a long time to be realised. For example, we have a 20-year project to improve energy efficiency at all Southend’s schools, including replacing the windows.  Such schemes deliver good savings as we manage the projects using our own staff and engineers.

How difficult was it to get the public onside?

(11)       We engaged most of the public via Southend Energy, and made much effort during the launch period to capture as many customers as possible.  The market is very complicated, and it is very difficult for the public to get a good deal, so we aimed to identify what customers needed to help them engage effectively.  We launched our brand – ‘Southend Energy’ – and as a logo we used Southend pier, which is iconic and recognisable as being unique to Southend.  We emphasised fairness and a long-term commitment to securing ‘fairer prices for local people’. We held our launch at the pier and had BBC TV and local press present, and there has been much press coverage since.  We market Southend Energy via existing community bodies such as Citizens’ Advice Bureaux and Residents’ Groups, bodies whom the public already knows and trusts.  We did this marketing for the first 6 months and gathered 2,000 customers, a 3% share of the market, which is worth £500,000 to the local economy.  We have a recognisable brand and an established partner platform on which we can build further in the future.

What is your working relationship with OVO? Have you been able to set any guarantee with them about future costs?

(12)       We chose them knowing there was no guarantee of future prices. The market identifies pricing but we cap their profit level. As there was no guarantee of future prices, when we were choosing a partner we looked at other aspects such as their past price performance, behaviour and customer care record, etc. OVO were consistently among the lowest-priced suppliers and consistently among those with the highest public service scores. They have subsequently won a ‘Which?’ award, and are popular with subscribers. Some suppliers are cheaper than them but this depends on a number of factors, including a customer’s combination of needs, e.g. the time and pattern of their energy usage; what is the cheapest supplier for one user will not be so for another user. To allow comparisons of usage, Ofgem identified a ‘standard user’, but it is still very difficult to generalise as any one customer’s usage will vary from day to day.

(13)       Southend Energy has a low standing charge but a slightly higher unit charge.  In Southend, we know there are many flats and smaller houses, which have a generally lower energy usage than houses, so this makes Southend Energy the cheapest option for them. We know that 8 out of 10 people save on their bills by using Southend Energy.  However, we always give them the option to switch to another user if they wish to.

I see schemes which offer to install solar panels on customers’ roofs at no cost to the customer. Surely there is some catch with this?

(14)       This is a scheme which has been around for years, wherein the customer basically leases their roof to the solar panel company, usually for a period of 20 – 25 years. In such an arrangement, the panel installation company would keep the feed-in tariff, i.e. the tariff that is paid to the host for generating electricity through solar and for selling their excess generated electricity to the national grid, and the customer benefits from having free electricity. This way of working was based upon the feed-in tariff the Government had offered for years, which made such arrangements attractive.  However, in January 2016, the Government will make a major cut to the feed-in tariff, reducing the financial benefit available to those taking part in such a scheme. If considering such a scheme, a customer would have to look at the long-term effects of having panels, e.g. if they wished to sell the property in the 25-year period, might the presence of panels make the property harder to sell, and what scope is there for a customer to buy themselves out of the scheme before the end of the 25 years? The basic premise of such schemes is OK but there are good and bad schemes around. Southend Energy is looking to see if we can offer a similar scheme, in which the customer is able to access reduced-rate rather than free electricity. This scheme will also need to change in January 2016 when the Government changes the feed-in tariff.

Does being a small Council mean you were constrained by economies of scale, and what would you or could you have done if you were a larger authority?

(15)       In terms of the size of an authority, what is possible depends on what you are trying to buy.  If you are investing in solar power, there is no benefit in being any bigger than we are as you would still procure each job one at a time. Larger scale in buying solar panels may bring a 5-10% savings benefit but this takes a long time to negotiate and may require a cash investment up front. We currently have two live projects, which are the largest solar project in Southend, involving two buildings, and an energy efficiency update programme in Southend schools, which  involves LED lighting, more efficient boilers, etc, and aims to deliver savings of 15 – 20%. Every teacher will be able to control the temperature of their own classroom, and if windows are opened, radiators turn off automatically, turning back on again once the windows are closed.  

How appropriate is MBT as a waste disposal method? How cost effective is it to use for this purpose?

(16)       Waste disposal is covered by an Essex-wide strategy.  There are two facilities which deal with all the county’s waste. Southend can access an anaerobic digestion plant, but this is not owned by the Council; all Southend’s waste is dealt with at Basildon.  Anaerobic digestion plants can be established and run on a small scale at an economical rate. It is usually possible to run an anaerobic digestion plant and sell the energy to cover the costs, and the Council would be avoiding paying landfill costs so would save elsewhere.

In terms of your Environmental Strategy, do you have any recommendations that Kent could follow? What future projects could Kent undertake?

(17)       We have several future projects - street lighting, mini district heating systems to heat small public buildings, ie libraries and museums, and the schools scheme to complete. We have three solar power schemes and we would like to do a ‘rent a roof’ scheme.  We aim to create our own best practice as well as learn from others, and Kent could do the same.

How does Southend-on-Sea Borough Council ensure that it gets the best deal for public money?

(18)       The Council buys everything via its own commercial services department.  Southend Energy is not a suitable source from which the Council could purchase energy.

I think the way in which your Council operates is very interesting, and the Council is very lucky to have someone like you in that post!  I would like the Select Committee to look at some of your work in more detail to see what Kent could copy.

(19)       Thank you!  I don’t know the county of Kent very well, but it is much larger than the area Southend-on-Sea Borough Council has to deal with and its size must bring a different set of challenges to those faced by my Council.  For instance, Southend-on-Sea Borough Council has very little land (only 16 square miles) that it could use to generate income.  All our waste disposal is contracted out so we cannot use that to generate income.  However, we aimed to reduce residents’ energy bills quickly, and that is an area in which Kent could do something similar.  Setting up an energy licence (i.e. by buying a bond) is expensive but there is much precedent for this among local authorities.  My officer team is funded by a loan repaid from the projects that we undertake so there is no cost to the Council Tax payer. I could arrange for Southend-on-Sea Borough Council colleagues to talk to Kent in more detail about the options available.    

Have you identified or quantified the training, apprenticeship and employment opportunities in the ‘green tech’ industry which arise from the work you are undertaking? Has it been difficult to find the craftsmen you need?

(20)     Some of the businesses participating in ‘rent a roof’ schemes, eg a local bank, have made a point of employing local apprentices and ex-service personnel but will not be able to continue to do this once the feed-in tariff is cut in January 2016. The intention is to invest in local people working locally but in a market driven by subsidies there is much churn, for example the solar companies change over time.  Businesses currently involved are looking ahead at what might be possible after January.

Might the outcome of the Paris conference change their minds?

(20)       I am unable to comment on this.

There are lots of further questions that we’d like to ask you.  Perhaps the Research Officers could send these to you and you would supply written answers to them?

(21)       Yes, I’d be very happy to do that.

Thank you for giving your time to attend today to help the Select Committee with its information gathering.